ADVERTISEMENT

ADVERTISEMENT

Sue Martin column: Corn deteriorates, but yields still good

Over the past week or so, one index-related firm estimated fair market value for corn at $3.68 a bushel because of declining stocks and the need to buy acres from soybeans. Basis the December corn, prices met with resistance at 324.5. Further res...

Over the past week or so, one index-related firm estimated fair market value for corn at $3.68 a bushel because of declining stocks and the need to buy acres from soybeans. Basis the December corn, prices met with resistance at 324.5. Further resistance should be at 328, 333.5 (a dollar up from the lows) and 341.5 (the 2004 highs for December corn). Wave four is 347.5. Chicago wheat marked a double top with two spike highs that should be tough at the 360-area basis the March contract. Argentina is estimated to have close to half of its new crop wheat sold, so it is fast selling out with these high prices. That makes Canada and Europe the United States' competitors for now.

The Indian government has announced it plans to increase planted wheat acreage by 1.41 million hectares in the next three years in hopes to increase production and reduce its dependency on imports. By 2012, Indian consumption is expected to hit 74.8 million metric tons with the recent average production of 70 million metric tons. India has turned away two poor-quality Russian cargoes. World stocks should be at their lowest in 25 years by the end of 2006 to '07. The 10-year average of world stocks-to-usage ratio is 30 percent vs. the 19.5 percent expected. Meanwhile, farmers are trying to harvest corn before more yield losses occur because of stock rot. The U.S. corn crop has deteriorated the past month because of wet weather and wind. Still, yields are good but down from last year by 15 percent or so. Farmers are having a great fall. Higher-than-expected prices beg for the farmer to sell some cash. I would have to agree. Bull spreads have been working, and July corn is premium to the December 2007 by 7 cents or more. Hard to hold a bull market up by its tail.

Consequently, U.S. soybeans have lost competitiveness to corn and wheat. With the soybean-to-wheat ratio now at low levels of 1.1 and soybeans to corn below a ratio of 2, U.S. farmers are expected to shift acres to wheat and corn. Likewise, wheat has pulled acres from corn and corn currently is competing with soybeans as farmers make their decisions toward acreage for next spring. There is a growing risk that oilseed plantings to grains in the 2007 to '08 season for Canada, Europe, Russia, Ukraine, India, China and South America. This should create a problem with oilseed production and create higher prices for soybeans and other oilseeds. This market is in transition even though stocks currently are sufficient. Add to this that the findings of Asian rust in Illinois and Indiana, while to late to hurt this year's crop, will help to switch acres to corn as the expectation to spend more money on fungicides next season and declining energies will help the switch. I already have my thoughts on this subject for next year, so more on that in time.

The market is coming to the realization that at the expense of the food chain, the global community is aggressive in its biofuel production and ethanol (which utilizes corn and sugar and some wheat) in such huge volumes that the ability to produce via land, infrastructure, water and labor are being stretched. Therefore, excellent weather and growing conditions and above-trend yields are become a must. However, this next growing season should be a better one because of El Nino. If so, then highs in by May 1 and probably sooner? More on that as time goes on.

What To Read Next
Iowa-based Summit Carbon Solutions says its pipeline project will help ethanol plants. The project aims to capture greenhouse gas emissions and pipe the CO2 to western North Dakota for underground storage.
The number of cows going to slaughter is far above the five-year average. Attendees of the annual Cow Calf Days tour in Minnesota heard the latest on cattle trends.
As Mikkel Pates approaches his retirement from Agweek after 44 years in journalism, he talks to Rose Dunn about learning TV, covering ag's characters and scandals and looking toward the future.
Members Only
“In our industry there aren’t a lot of young people in it. I like the fact that there are a lot of young people in agriculture here,” he said of the Mitchell area.